HMRC Advisory Fuel Rates Change Again

On 3 January this year, we blogged on the new HMRC advisory fuel rates. These are the rates used to calculate the VAT element of any vehicles mileage rates claimed, such as those under the Fixed Profits Car Scheme.

This original article can be revisited at; http://1staddition.blogspot.com/search?q=Mileage+rates if you want to check out the specifics.

As of 1 December 2009, these rates have, once again, changed. The revised rates are now available on the HMRC web site, at the following link; http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

New HMRC Advisory Fuel Rates

Many people are now aware of the Fixed Profits Car Scheme. For those who aren't, we covered it briefly in our post of 27 May 2008; http://1staddition.blogspot.com/2008/05/how-do-i-run-my-vehicle-through.html

The question we often get asked is; "How do I claim VAT on the FPCS, if I'm no longer putting my petrol receipts etc through the business?"

In order to facilitate this, HMRC introduced the Advisory Fuel Rates. These are the deemed fuel elements of the FPCS, based on the engine size of the vehicle concerned, and the fuel used, and we are allowed to claim VAT based on these rates.

As of 1 January 2009, due to the current economic circumstances, the Advisory Fuel Rates have been increased. Full details are shown on the HMRC web site;

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

The Fixed Profit Car Scheme (FPCS) rates remain unchanged with the first 10,000 miles payable at 40p then 25p thereafter for cars, 24p for all mileage for motorcycles and 20p for all miles by bicycle.

Yes, that's right; we can claim 20p per mile simply for cycling to work. The Government are always pushing for us to become ‘greener’ and have put some incentives in place to encourage us down that route.

So if you fancy becoming ‘greener’ and fitter consider ditching the car and pedalling to work.

Basically your employer buys a bike and any equipment relating to it and hires it to you until you have paid back its full cost, usually over a year.

The tax break is facilitated because you pay for the bike by agreeing to reduce your monthly/weekly salary, before tax and NIC is deducted under the ’salary sacrifice scheme’. Paying in this way you can meet your repayments out of your pre-tax rather than post taxed income.

This can translate to almost a 50% cash discount on the price of a new bike. Higher rate tax payers will benefit more from the scheme.

The scheme applies to employees only, with a contract of employment and earnings that are at or above the national minumum wage level once the salary sacrifice has been applied.

So, if your new year's resolution was to 'get fit' this might be the option for you.

How Do I Run My Vehicle Through The Business?

One area that most new business owners need to know about is how to run a vehicle (including, where applicable, their own car) through their business.

The answer to this will mainly depend upon whether you are running the business as a sole trader or a limited company, as follows:

Sole Trader

As a sole trader, YOU are the business, and your car automatically becomes part of the business, for tax purposes. In this scenario, you are simply required to keep a record of your business mileage, which can then be compared against the vehicle’s total mileage for the year, to give a ‘business’ percentage. If, for the sake of argument, this works out as 60%, you can then claim 60% of the entire running costs of that vehicle, including fuel, tax, insurance, repairs etc.

Limited Company

This is a totally different scenario, as the limited company is a separate legal entity in its own right. This means that, if you simply pay for the car through the business, then the company is, effectively, providing you with a company car, which will be subject to tax like any other employee. The last thing any of us want is to be taxed for using our own vehicle.

The way around this is to use what is know as the Fixed Profits Car Scheme, whereby we can claim a set mileage rate from the business, which we then use to finance the running of the vehicle. This way, the company indirectly pays the motoring costs, but there is no tax implication, and the vehicle remains your own property.

The FPCS rates are 40p per mile for the first 10,000 miles a year, and 25p per mile thereafter.